Whither trade peace with China?

December 6, 2018

Over a dinner of sirloin and salad Saturday night in Argentina, the American and Chinese delegations sat across the table from one another, presumably to make some headway in the tit-for-tat exchange of trade actions that have plagued importers and exporters in both countries. Getting to market has gotten more expensive – assuming the market hasn’t been frozen out entirely as US lobstermen are feeling compared to their Canadian counterparts. What do we know now, TODAY, about what was agreed to in principle?

We know that at least as of today, Thursday, December 6th, there has been no formal publication on the USTR’s website or in the Federal Register of the announced ninety day suspension of the increase of duties from 10% to 25% on the USTR’s third annex of HTS numbers. Even as this ninety-day suspension was being explained further by various members of the Administration, there were clarifications and walk-backs on the effective date of the suspension.

The White House statement on the dinner also said that to address non-tariff barriers that have rankled the President, “President Trump and President Xi have agreed to immediately begin negotiations on structural changes with respect to forced technology transfer, intellectual property protection, non-tariff barriers, cyber intrusions and cyber theft, services and agriculture. Both parties agree that they will endeavor to have this transaction completed within the next 90 days. If at the end of this period of time, the parties are unable to reach an agreement, the 10% tariffs will be raised to 25%.”

There was a very thoughtful piece published at The Week laying out how there are systemic challenges associated with the proposed announcements of reduced vehicle tariffs and IP protection. As Jeff Spross, the author of the piece notes:

“How is everything supposed to get sorted out? The Chinese often say they’re willing to at least talk about reforming forced technology transfer and the like. But the onerous requirements China places on foreign businesses and its limits to market access aren’t just an instance of the Chinese being cantankerous. They’re logical extensions of China’s state-run, capitalist-communist hybrid economy.”

And Spross is correct. Americans forget that many companies are state-owned and the legal system in China is geared to protect Chinese companies. This creates an entirely separate set of pitfalls for ensuring FCPA compliance – is the factory owner really a private entity, or more likely somehow connected to the government?

Surrounding countries are seeing opportunity in the ongoing US/China spat, but supply chains don’t move overnight – nor are the workers trained, the factories built nor the infrastructure robust enough to support a potential flood of new production. And we cannot take a US-centric view – factories produce for global markets, and a decision to relocate to deal with the financial impacts of reduced business with the United States doesn’t mean there aren’t new opportunities to sell and ship to other parts of the world to offset US-centric losses.

Regardless of where goods originate from, RIM has offices in Hong Kong and Manila and the network to assure exporters that whether their goods are coming from Hangzhou or Ho Chi Minh we will get the cargo where it needs to be.